Capping a case that has drawn the attention of healthcare lawyers and hospital executives nationwide, the U.S. District Court for the District of South Carolina has ordered Tuomey Healthcare System, Inc. (“Tuomey”) to pay over $237* million for violations of the Stark Law and False Claims Act arising from certain employment agreements between Tuomey and local physicians. The court’s order follows a jury verdict earlier this year that found that Tuomey had violated the Stark Law and FCA, and that 21,730 claims, with a total value of over $39 million, were submitted in violation of these statutes. The court concluded that Tuomey must pay a civil penalty under the FCA of $5,500 per claim and an amount equal to three times the jury verdict, for total civil penalties of over $237 million, which includes the $39 million value of the improperly submitted claims.

The court’s order comes on the heels of the departure of Tuomey’s CEO and COO, as well as the South Carolina Attorney General’s opinion that Tuomey may not yet indemnify its directors and officers for costs they’ve incurred as a result of this litigation.

Because the case touches upon important Stark Law issues, including fair market value and payment based on referrals, this case, and the government’s arguments, have been closely followed by lawyers and healthcare executives. In light of the large penalty imposed on Tuomey, the case will also likely serve as a significant cautionary tale for hospitals in structuring arrangements with physicians. This is particularly important given the current trend of hospital-physician alignment precipitated by certain provisions of the Affordable Care Act.

 

*Correction: Tuomey must pay more than $237 million in False Claims Act penalties, not $276 million as originally reported.  This correction comes after the court on Wednesday, October 2, corrected a clerical error that had wrongly added a South Carolina federal jury’s $39 million damages finding for alleged Medicare fraud on top of the government’s $237 million penalty request, instead of including it in the sum.